Discussions of economic issues in policy circles often suffer from a which way is up? dilemma; its not clear what the problem is that needs to be solved. The massive fretting over Chinas devaluation of its currency last week is one such example. Just to line up the bases, the basic story on Chinas devaluation is that a reduced value of Chinas currency against the dollar will make Chinese goods and services cheaper relative to goods and services produced in the United States. Other things equal, this means that we will export less to China and import more, thereby increasing...
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http://www.cepr.net/publications/op-eds-columns/china-s-currency-devaluation-and-the-federal-reserve-board